People might be aware that it is possible to use the amount saved in health savings account for paying out-of-pocket Medicare expenses, though they must be eligible for an HSA and need to plan before applying for Medicare. It is a well-communicated fact that Medicare is not free and people enrolled in Medicare have to pay monthly premiums, deductibles, copays, and coinsurance and some of the healthcare services and drugs are not covered at all.
Medicare Out of Pocket Spending
Medicare costs quickly add up and it is observed that on the average Medicare beneficiary spend a good amount for out of pocket expenses. The out of pocket expenses for the Medicare beneficiary may include:
Individuals who have paid Medicare taxes for ten years get Medicare Part A coverage premium free. However, individuals need to know that availing those coverage will cost them, as for each hospital stay of up to 60 days long they will have to pay $1,408 in 2020.
Individuals have to pay Medicare Part B premiums and unless they qualify for a Medicare Savings Plan, the least amount that they have to pay is based upon their income bracket, which is currently $144.60 per month or $1,735.20 per year. Besides these, excluding certain preventive screening tests, individuals are required to pay 20% for any medical services.
Some of the individuals prefer to enroll in Medicare Advantage plans instead of Original Medicare. Even if people are eligible for a premium-free Medicare Advantage plan, then also they are still required to pay the Medicare Part B premiums.
Medicare Part D plans are managed and run by private health insurance companies. These plans have different premiums, copays, and deductibles. Some of the Medicare Advantage plans available also come with the prescription drug benefits included in them.
People enrolled in Original Medicare have the option to sign up for a supplement plan, as these plans help them to reduce costs. The premiums of Medicare Supplement plans in 2020 range from $50 to $300 per month depending on the type of the plan and area of the enrollees.
Health Savings Accounts are opened to keep aside money for any healthcare expenses that they may have now or in the future including some future Medicare out-of-pocket expenses. People need to understand that not everyone is eligible for an HSA, as individuals enrolled in a qualifying high-deductible health plan is only eligible for a Health Savings Accounts. Just like any other health plan, coverage under this plan also does not start until people pay their deductible amount.
Even if individuals have a high-deductible health plan, they cannot sign up for an HSA if they are having any other health plans like Flexible Spending Account, or Health Reimbursement Arrangements. Albeit it excludes separate dental, vision, and long-term health plans, mainly because these benefits are not covered under many high-deductible plans.
How Health Savings Accounts Work
Individuals are aware that they can deposit funds into an HSA without being taxed but they are allowed to deposit only up to a certain amount every year. Individuals can deposit up to $3,550 as an individual or $7,100 as a family in 2020. Individuals depositing those funds themselves in the HSA can apply for a tax deduction that year and if their employers have deposited those funds from their paychecks, then that part of their income is not taxed from the beginning and a tax deduction is not necessary. Money that gets deposited into the HSA through investment earnings and interest is not taxed and when that amount is used to pay for qualifying medical expenses, then also it is not taxed. However, if money is withdrawn from the account and used for non-medical reasons, then the person will face an income tax on the amount spent along with an additional 20% tax.
Method to Use an HSA for Healthcare Expenses
Individuals cannot sign up for an HSA if they are enrolled in Medicare and they also cannot contribute funds to a preexisting account. Individuals also need to stop making contributions at least six months before enrolling in Medicare or they may have to face financial penalties. However, that does not mean that they cannot use a preexisting account to pay off their Medicare expenses.
Individuals can now use a Health Savings Account to pay for different Medicare expenses. Qualifying expenses include monthly premiums of Original Medicare, Medicare Advantage, and Part D. Individuals can also use the account to pay for coinsurance, copayments, and deductibles of Medicare plans.
Non-Medicare expenses that can be paid using this account include premiums for a long-term care plan, and over-the-counter medications if they have prescribed for them. People should keep in mind that monthly premiums of Medicare Supplement plans do not qualify under HSA rules.
Maximize HSA for Medicare
Individuals depending upon their circumstances should build up an HSA to use once they move to Medicare. Individuals by keeping aside tax-free earnings now and reducing their future taxes can potentially save thousands of dollars at the time of retirement when they will be on a fixed income. To ensure this, individuals should deposit funds in their HSA as long as possible before signing up for Medicare. To ensure this people need to understand the Medicare calendar. Individuals become eligible for Medicare on turning 65 years old, and if they are receiving Social Security or Railroad Retirement Benefits then they get automatically enrolled in Original Medicare. Similarly, people who are on Social Security Disability Insurance get automatically enrolled in Medicare after 24 months. And everyone else has to apply for Medicare.
Medicare eligibility begins at 65 years of age, and the current retirement age for Social Security is 67. A good number of people defer retirement until 70 years of age so that they can maximize their Social Security earnings with delayed retirement credits. Individuals who are employed even after 65 years of age and are still eligible for an employer-sponsored health plan, then they prefer to delay signing up for Medicare and continue with their HSA. However, individuals can delay Medicare enrollment using the Special Enrollment Period, if their employers have at least 20 full-time employees. In such cases, they have eight months to sign up for Medicare from the time they leave their jobs or lose their employer-sponsored coverage, whichever arrives first. Otherwise, they will face Medicare penalties.